Chinese firms buy Japanese ones

Scaring the salarymen

Fear of foreign takeovers may spur change in corporate Japan

MANAGERS across Japan were stunned last month when a factory belonging to Ogihara, a Japanese diemaker, was sold to BYD, a Chinese carmaker that boasts Warren Buffett as an investor. In a sign of the sensitivity of the matter, the Japanese firm tried to keep the transaction quiet, never issuing a press release and refusing all interview requests.

Japan has a long history of resisting foreigners who seek to buy their way into the country. But most recent squabbles have at least been with firms from America, a political ally. Deals involving firms from the Chinese mainland are touchier because of the two countries' uneasy relations. This has kept the number of Sino-Japanese mergers and acquisitions low, even as China surpassed America in 2007 to become Japan's largest trading partner.

Yet the volume of deals is now increasing. The number of purchases of Japanese firms by Chinese ones almost doubled last year and their value nearly quadrupled, albeit from low bases (see chart). The deals usually involve small firms with specialist technology, which sell a stake or a subsidiary rather than the whole company, typically for a few million dollars.

Chinese firms are not attracted by Japan's stagnant domestic market, with its declining population and chronic overcapacity; they want to acquire technologies, skills and brands that can be brought back to China or used in other countries, says Heang Chhor, the head of the Tokyo office of McKinsey, a consultancy. In return, the Japanese firm may get not only capital and new management ideas, but also better access to the burgeoning Chinese market.

This is the case with Laox, an atrophying electronics retailer in which a Chinese franchisee and Suning, a big Chinese appliance retailer, recently bought a 51% stake. The new owners have revamped the firm's Japanese stores to cater to Chinese tourists who flock to Tokyo to shop, and plan to open 110 Laox outlets in China over the next three years. By that time they expect sales in China to surpass those in Japan.

Importantly, the Chinese owners want to learn from Laox. They want to improve their relations with suppliers and bring Japan's famed standards of service to China, says Luo Yiwen, Laox's new boss, a Chinese national who has lived in Japan for two decades. Before the acquisition Laox's share price had fallen as low as ¥10 ($0.11); it now trades at around ¥110.

Many Japanese are uneasy working for Chinese (much as Americans disliked working for Japanese carmakers in the 1980s). When Honma, a high-end golf-club maker, was acquired by China's Marlion Holdings in March, the staff were “very shocked”, admits one employee. But the firm, whose clubs are handmade and individually numbered, had recently been in bankruptcy. “So we're just happy to have jobs,” he adds. Honma's sales are expected to boom as the new owner tempts China's newly-rich golfers with its posh clubs. But the Japanese employee suspects that recruiting new workers at its factory in Sakata will be a problem: people would rather work for a completely Japanese firm.

In some cases, differences in business culture make the tie-ups unstable. In 2003 companies from China and Taiwan, along with a Japanese partner, paid ¥1.2 billion for a struggling producer of colour filters for LCD panels. But the new company, Japan Optical Display Technology, was shuttered after four years because of clashes. The Chinese owners were reluctant to pay for environmental compliance. Moreover, they tolerated manufacturing defects that the Japanese partner was unwilling to ignore, explains Osamu Mizoguchi, the former boss. “The philosophies on quality were too different,” he says.

Despite the difficulties, investors assume such deals will continue to proliferate. The expected appreciation of the yuan will fuel foreign deals by making them relatively cheaper (just as a strong yen did in Japan's heyday in the 1980s). The fear of being bought, in turn, may be galvanising Japanese firms. Japanese businessmen are familiar with the concept of gaiatsu, or “foreign pressure” to change. But these days the pressure is coming as much from Chinese firms as from the Western ones to which the phrase has most commonly been applied.